Insurance (Homeowners and Renters)
| Author | Jeffrey Wilson |
| Pages | 1199-1205 |
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Insurance is a legally binding contract, typically referred to as an insurance policy. The contractual relationship is between the insurance company and the person or entity buying the policy, the policyholder. The policyholder makes payments to the insurance company, which can be monthly, quarterly or yearly. The insurance company agrees to pay for certain types of losses under certain conditions, which are set forth in the policy.
One requirement for insurance is that the policyholder needs to possess an insurable interest in the subject of the insurance. A policyholder either owning or renting property is said to have such an interest in the property. Insurance policies compensate an insured party for the cost of monetary damages in the event of economic loss or in the event of damages leveled against a policyholder who is liable for damages to another. Liability insurance pays damages up to the dollar amount of liability coverage purchased and protects the personal assets of the policyholder in the event of a judgement against the policyholder for damages.
Homeowner's insurance includes both property and liability coverage, many of which cover activities away from and not in any way connected with a policyholder's residence. Homeowner's insurance covers repair or rebuilding of a house which is damaged by natural causes such as fire, fallen trees, or heavy winds. It also covers acts of theft and vandalism. This type of policy also typically pays for replacement of the personal items inside a residence if those items are damaged by the same causes that damage the house or if such items are stolen.
Homeowner's policies also cover legal liability in the event that anyone suffers an injury while on the insured property. Certain actions of the policyholder, which occur away from the insured property may also be covered. Even if a house is under construction and has no contents to be protected, the homeowner can insure the structure against damages for fire and liability.
Title insurance provides coverage to a homeowner if it is discovered in the future that there was
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a defect in the title and the homeowner did not get clear title to the property. Coverage is provided if a dispute arises that was not discovered during the title search. The title insurance will pay attorney fees, as well as all other costs in defending the title. The lender will usually require title insurance until the loan is paid in full.
Mortgage insurance is only for the benefit of the lender. It protects the lender against the risk of nonpayment by the buyer. It is generally required by a lender to protect it against default by a borrower who makes a low down payment. If the borrower defaults, the mortgage insurer pays the lender its money and then seeks to recover from the borrower or forecloses on the property.
Mortgage life insurance is not the same as mortgage insurance. It is simply a life insurance policy that pays off the mortgage balance if the policyholder dies.
Although renting a property is not subject to the same liability as owning a property, renters can still benefit from property insurance. Renter's insurance typically covers the cost of replacing personal items that are stolen, damaged, or destroyed. Additionally, renters, like owners, have potential liability to anyone injured on the occupied property. Renter's insurance policies are similar to homeowners' insurance policies but have no coverage for buildings or structures. Although renter's insurance is not usually required by the terms of some leases, tenants may be required to have insurance to cover their liability exposure if someone is injured on the premises, or if damages occur from items owned by the renter, such as waterbeds.
Limitations and exclusions can alter the provisions of coverage in a policy. A limitation is an exception to the general scope of coverage, applicable only under certain circumstances or for a specified period of time. An exclusion is a broader exception which often rules out coverage for such things as intentional acts, when the policy covers damages due to negligent acts.
State insurance laws dictate the manner in which insurance companies may conduct marketing, underwriting (determining which policyholders or risks to accept or reject for coverage), and rate activities. Insurance underwriting decisions must be based on reasons that are related in some way to the risk to be insured. Some states have laws limiting an insurance company's ability to cancel or discontinue coverage once a policy has been issued. In all states, it is illegal to refuse insurance on the basis of race, color, sex, religion, national origin or ancestry. In many states this list is expanded to include marital status, age, occupation, language, sexual orientation, physical or mental impairment, or the geographic area a person resides. An individual has a legal right to be promptly informed of the reasons for a refusal to issue an insurance policy.
Insurance companies determine the premium, or payment to charge, based on numerous circumstances known as rating factors. These rating factors must be reasonably related to the risk being insured. The rates and rating factors for insurance must be filed with the state insurance regulatory agency for each state where the insurance is to be sold. In certain states, the rates must get regulatory approval before they can be used.
Generally, once a policy is issued, it can be cancelled only for failure to make premium payments or for misrepresentation or fraud by the policyholder. State laws typically limit items an insurance company can include in the cancellation provisions of its policies. Most property and liability policies are issued for a stated policy term. The limitation on cancellation applies only during the policy term. Insurance companies can decide to discontinue or not renew these policies at the end of the term for any reason except a reason that would be prohibited by law. In most states, an insurance company is required to provide the policyholder with written notice if it intends not to renew a renter's or homeowner's policy.
A policyholder may cancel an insurance policy at any time by giving notice to...
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